Why the Real Unemployment Rate is 15.6%

Today the Obama administration reported the official unemployment rate at 8.5%, representing more than a half point decline in two months.  This lower number is politically good news for the President.

However, American Enterprise Institute economist Aparna Mathur and economic researcher Matt Jensen find that the 8/5% rate is misleading. They report:

•  A better measure of the real jobless rate is called the “U-6” which stands at 15.6 percent.  (The U-6 rate includes those that would still like a job and have looked for work in the last twelve months, not just the last four weeks.)  That means the number of Americans hurt by the bad economy is almost twice what the official number would suggest.

• In fact, the official rate excludes workers who have decided to drop out of the labor market altogether — either because they are discouraged or for other reasons — and also ignores workers who settle for part-time work because they are unable to find a full-time job.

• Currently more than 5.7 million Americans, or an astounding 43 percent of all unemployed have been unemployed for more than 27 weeks. The tremendous increase in long-term unemployment is one factor driving the unprecedented disparity between the official measure of unemployment and the alternative measure (U-6). Long-term unemployment has a damaging psychological impact on workers’ willingness to keep searching for work and motivates them to accept part-time work.

• As bad policy from Washington forces businesses to seek flexibility, the chasm between the U-6 and official unemployment rates may become a permanent fixture of the economic landscape.